MASSENA -- The Massena Central School District Board of Education is deep in a discussion over how to properly manage its fund balance and reserve funds, school officials say.

After questions arose concerning the district’s reserves, the school board contracted with the business department at St. Lawrence/Lewis BOCES to take a closer look at the school’s finances.

After reviewing the independent audit report, BOCES discovered the district had $22 million in combined total reserve funds with more accessible funds than anticipated. Some Finance Committee members were made aware of the updated fund balances earlier this month.

New York State allows schools to set aside money in specially designated reserve funds. That money can be used only for specific purposes as defined for each fund. For example, money in the capital reserve fund can only be spent on capital – building -- projects. Under the law, a district may only set aside money in an amount reflecting expected future expenses. This allows a district to save for the future, but also prevents a district from needlessly hoarding money.

BOCES officials found the district had over-funded its Employee Benefits Accrued Liability Reserve (EBALR), a fund to pay employees for unused leave time under current contracts. As of May, the district had more than $9 million more in the fund than its anticipated expenses, school officials said.

The overfunding is due, in part, to confusion over state guidelines regarding the use of EBLAR funds, according to the district office. Many districts, including Massena, had set aside money to pay retiree health insurance costs. Saving up protects taxpayers from a sudden tax increase when a large number of employees retire or insurance premiums rise dramatically. The state Comptroller’s Office later determined that this fund can only be used for unused leave time, leaving the district with the excess money. Further, because this is a reserve fund and the money can be used only for the specified purpose, the district could not use it for other expenditures, school officials said.

Although Comptroller Thomas DiNapoli has recommended that New York authorize schools to create an Other Post-Employee Benefits fund (OPEB), the state has yet to grant districts that authority.

In the meantime, the Massena district is limited in how it can use the excess $9 million. In 2012, Massena’s board of education took advantage of the comptroller’s ruling on EBALR funds allowing schools to use the funds to offset property tax increases. In June, the district transferred $2.6 million into the 2011-2012 into the general fund, and will transfer another $2 million in the 2012-2013 budget. This will leave a total of about $6.4 million in the Employee Benefit Accrued Liability Reserve Fund (EBALR).

“Our hope is that the state will take a closer look at EBALR funds and allow us to transfer those funds into an OPEB fund from which we can help pay for our retirees’ health insurance,” said the school board’s Finance Committee Chair Michael LeBire. “Until then, we are sitting on $6.4 million that we cannot use effectively.”

The BOCES staff also discovered that the district had rapidly accumulated excessive fund balances over the past several years.

Excessive fund balance is the money left over at the end of the fiscal year after having paid all of the district’s bills. That money can be rolled over as revenue into the next year’s budget to lower property taxes, placed in a state-authorized reserve fund, set aside as fund balance, or any combination of the three options.

The excess funds are the result of a history of overestimating expenses and underestimating revenues. At the end of each year, the largest portion of the excess is added to the district’s reserves, building “savings.”

Under state law, school districts may hold four percent of a budget as fund balance. For Massena that is about $1.84 million.

“The problem is that New York’s rules on fund balance are outdated and impractical. As a practice, many districts in New York have routinely exceeded the four percent limit,” said LeBire. “In a district of this size, $1.84 million could disappear in the blink of an eye -- one little hiccup could bring disaster. There is a fine line between having enough fund balance and having too much. At this point, this is clearly too much.”

The BOCES staff found that the fund balance use in the current 2011-12 spending plan will be roughly $3 million less than anticipated. The approved 2011-12 spending plan was to use over $4 million from reserves, yet the current year-end forecast indicates approximately $1 million from reserves will be used.

“We find we are utilizing far less of our reserves than anticipated again this year,” LeBire said. “We are still operating in the red but at a level far less than forecasted by our business office. Past decisions were made based on the information provided which indicated that we were quickly running out of money. With this new information as a starting point, we need to reexamine our budgeting practices and move forward making sound decisions for our community and its children.”